Use the Following Information for Questions
the Dairy Division

question 103

Multiple Choice

Use the following information for questions
The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The operation has the capacity to produce 200,000 gallons of milk a year. Last year's operating results were as follows: $$\begin{array} { l r } \text { Sales } ( 160,000 ) \text { gallons } & \$ 500,000 \\\text { Variable costs } & 312,000 \\\text { Contribution margin } & 188,000 \\\text { Fixed costs } & 100,000 \\\text { Net Income } & \$ 88,000\end{array}$$
-Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division. The minimum price that will increase the Dairy Division's profit is

• A) $2.50 per gallon.
• B) $1.18 per gallon.
• C) $1.95 per gallon.
• D) $0.55 per gallon.

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Definitions:

Direct Labor Hour

The actual time spent by workers directly producing a product or providing a service.

Actual Overhead

The actual amount of indirect costs associated with production, including utilities, maintenance, and factory overhead, incurred during a specific period.

Labor Rate Variance

A measure of the difference between the actual cost of labor and the budgeted or standard cost.

Direct Labor

Direct labor costs are the wages and benefits paid to employees who are directly involved in producing goods or providing services.